It's no secret that the SEC is taking a look at market structure issues broadly, though you have to wonder how its budgetary woes and Dodd-Frank imperatives will affect its ability to take on much else.

As part of that look, they have subpoenaed information from a variety of high-frequency trading outfits, according to the Wall Street Journal. While the specific companies that have received these requests for information have not been publicized, you would have to assume that the main players, especially the top market makers, would be on the list. It's still unclear what the agency intends to do regarding high-frequency trading.

The debate about the value they bring to the markets started even before the May 6, 2010 Flash Crash. Regulators have been among those suggesting that high-frequency trading has had some deleterious effects. But pinning it all down is hard. At the same time, high-frequency broker dealers maintain with good reason that they have added liquidity in stunning amounts, which has led to narrower spreads and enhanced price improvement for all investors.

The truth most likely is that everyone is right in this debate. It would be hard to envision the markets without high-frequency trading, which is best seen not as a strategy but as a means to execute strategies, be it arbitrage or whatever. (An exception might be Citi-based rebate trade that went away when the stock reverse split recently). The entire exchange and trading industry has made a massive investment in the physical infrastructure necessary to support such trading. That cannot be discounted. We may see some moves around the edges, to better regulate cancelled orders and the like. But high-frequency trading-based strategies will not be going away, despite the volume drought we've seen lately. It will be interesting to learn exactly what information the SEC is seeking.     

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